U.S. businesses call for more tax cuts

By SHIHOKO GOTO, UPI Senior Business Correspondent  |  Aug. 29, 2002 at 4:24 PM
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WASHINGTON, Aug. 29 (UPI) -- Further tax cuts are necessary to keep the U.S. economy afloat, particularly as downside risks to economic growth remain, the U.S. Chamber of Commerce's chief economist said Thursday.

While there are some signs of recovery, it is still too early to determine whether the worst is over yet or not, economist Martin Regalia told reporters earlier in the day. But he pointed out that there was not much scope for a shift in monetary policy to keep the economic engine revving, and noted the potential of a so-called double-dip recession.

"Monetary policy has run its course. ... It's unclear how much more (the Federal Reserve) can push down interest rates," Regalia said, pointing out that the key federal funds target rate was already at its lowest level in nearly 40 years at 1.75 percent.

He also noted that for all the weaknesses in the U.S. economy, access to cheap credit was not one of them. As a result, he questioned the effectiveness of a further interest rate cut even if the Fed did decide to ease monetary policy still further.

Instead, Regalia said that the economy could benefit from a more accommodative fiscal stance, and cut taxes to spur consumer spending.

"Tax cuts will increase consumption ... and provide consumer confidence," Regalia said.

The chamber, which represents some of the country's biggest businesses, welcomed the tax cuts introduced by the Bush administration last year, crediting them with preventing the recession from being too deep or drawn-out.

While the decline in government revenue has been cited as the single biggest cause of the ever-ballooning budget deficit, entrepreneurs dismissed concerns about the budget, pointing out that it was more important to get consumer and business confidence back up to generate profits in the first place. Indeed, the White House has been pressing for last year's tax cuts to be permanent, while an increasing number of economists have pointed out the rising burden on government spending on the one hand and a shrinking tax base on the other.

Regalia argued that with tax cuts, the economy could once again pick up steadily, and resume a more "steady state" of growth by early next year.

But while the labor market remains shaky under current economic situation, the chamber pointed out that the United States will suffer from a shortage of laborers in the longer-term, and called for more open immigration policies.

"Without more immigrants, the standard of living will decline in this country," said Randel Johnson, the chamber's vice president on labor and immigration.

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